Governor’s May Budget Revision - PowerPoint PPT Presentation

Governor’s May Budget Revision

• It’s all about the economics
• Revenues are improving at a much slower rate than expected in January
• Immense pressure on the State Budget and competition for limited resources
• The revised Budget has a lot of moving parts again this year
• Bottom line: Best case is flat funding for education – and maybe a lot worse
• In January, the Governor’s tax initiative was expected to fill the revenue gap
• In May, revenues have fallen, and, if the initiative passes, it fills only half the gap
• Education policy, expectations for student performance, and funding for schools are not aligned
• Today’s funding level may be our new reality for the foreseeable future

• The May Revision first recognizes that January’s projected $9.2 billion State Budget shortfall has grown to $15.7 billion in May
• Even if the Governor’s tax measure passes in November, there will still be a significant State Budget problem
• As a result, the Governor proposes:
• More cuts to the non-Proposition 98 side of the Budget
• More manipulations to reduce Proposition 98 actual funding
• But, in the end, planned K-12 funding is much like the January proposal
• Flat funding if the taxes pass
• Big cuts if they don’t
• 2012-13 will not be a good year for education funding
• And failure of the taxes would make it a disaster

• Temporary taxes
• More reliance on temporary taxes than ever
• Cash deferrals
• Deferrals are the balancer; Proposition 98 gains disappear by reducing deferrals
• Weighted Student Formula (WSF)
• Grade span adjustments and additional revised add-ons
• Flexibility proposals
• Still alive – no changes from January
• Transitional Kindergarten (TK)
• Governor reduces savings estimate, but still proposes elimination of the mandate

• Despite claims of:
• $6 billion more for schools!
• 16% increase for schools!
• Our district, our schools, our classrooms do not get one more dime whether the Governor’s taxes pass or not!
• Our gain is the absence of yet another cut
• The public is confused
• The state says Proposition 98 is growing
• But local schools are making massive cuts and affirming layoffs
• The state has not provided a single new dollar to local schools since 2007-08

• The California economy is recovering slowly as well
• The state leads the nation in exports, especially to the “Pacific Rim” countries, with total exports increasing 11% in 2011
• The high-tech sector is also a strong advantage for California
• The Facebook initial public offering (IPO) alone could add $1.5 billion in tax revenues in 2011-12 and 2012-13
• The state’s housing market, however, continues to be a drag on growth
• Like the nation, California’s employment growth has sputtered this spring
• In March, the state added 18,200 jobs and the unemployment rate increased slightly to 11%, up from 10.9% one month earlier
• The state has added about 385,900 jobs since the recovery began almost three years ago
• Remember: the recession wiped out about 1.3 million jobs

• Even if the Legislature adopts the Governor’s May Revision as proposed, the State Budget would face huge risks in 2012-13
• Voter approval of the Governor’s tax initiative is uncertain at best
• The measure has yet to qualify for the November ballot
• While more than one million signatures have been submitted, more than 800,000 must be found valid in order for the initiative to be placed on the ballot
• The latest poll found that about 54% of those surveyed supported the measure, a slim margin at this stage of the campaign
• A competing measure sponsored by Molly Munger and the Parent Teacher Association (PTA) could confuse voters and draw support away from the Governor’s initative
• The Facebook IPO could fall short of expectations, resulting in a loss of General Fund tax revenue

• For 2011-12, revenue limits were reduced as a result of the midyear “trigger” reductions
• 0.198% reduction to districts’ undeficited revenue limit, or about $13 per ADA on average
• 0.65% reduction to districts’ undeficited revenue limit, or about $42 per ADA for all school districts, related to the $248 million cut to home-to-school and special education transportation
• This change was enacted by Senate Bill 81 (Chapter 2/2012)
• The 2011 Budget Act originally would have eliminated one-half of districts’ transportation funding for 2011-12
• The midyear “trigger” reductions were one-time and these funds are restored for 2012-13

• For 2012-13, the May Revision recognizes the statutory cost-of-living adjustment (COLA) of 3.24%
• The May Revision fully funds ADA growth of $169 million in 2012-13 for school districts and county offices of education
• The deficit factor to eliminate the statutory COLA and provide flat funding in 2012-13 is 22.272%, after restoration of the one-time reductions in 2011-12

• Apply the 2012-13 deficit of 22.272% to the undeficited base revenue limit

$6,718

$1,496

Example for Escalon Unified School District

Funded revenue limit

= $6,718 x (1 - 0.22272)

= $6,718 x 0.77728

= $5,222

Funded Base Revenue Limit

$5,222

• The 2011-12 revenue limit after the deficit, but before the midyear cuts is $5,221 per ADA
• The amount received after the one-time midyear cuts is $5,166 per ADA
• The midyear cuts are to be restored in 2012-13, resulting in flat funding

22.272% deficit

19.754% deficit

$5,222 Funded Base Revenue Limit

$5,166 Funded Base Revenue Limit

Loss due to midyear cut

• SSC had been recommending $455 per ADA as a planning factor if the taxes fail
• $370 as a revenue limit cut
• $85 for 100% loss of transportation funding
• The DOF announced an estimate of $398, but then revised its deficit factor
• For now, districts that plan for $441 should be safe
• If the DOF revises its estimate, SSC will revise and report a new estimate
• May Revision proposes school district authorization to reduce school year by up to a total of 15 days over the 2012-13 and 2013-14 school years

• Planning will again be difficult because of the potential for major changes at midyear
• Collective bargaining will need to start early
• Until we know the results of the November tax initiatives, plan for an ongoing loss of about $441 per ADA
• Begin negotiations about if and how the school year will be shortened if the taxes fail
• Forecasting cash continues to be a major concern
• Estimate needs at the high end and borrow accordingly
• Avoid the need for a second borrowing to save on issuance costs
• Plan to offer Transitional Kindergarten
• Move ahead with planning to accommodate all students affected by the shift in the entry age for Kindergarten
• Delay restoring positions specifically for TK unless you are already committed to offering it

• If the Governor’s tax initiative passes:
• Plan for the WSF to move forward with phase-in beginning in 2012-13
• Remember, under this plan you get no new dollars, but you do not take another cut
• If the Governor’s tax initiative fails:
• Plan to make a $441 per-ADA cut on an ongoing basis
• The WSF will not move ahead
• Hold on to reserves – without the taxes, we expect the Governor to propose another cut in January 2013 to address the structural deficit
• If the PTA/Munger initiative passes, be prepared to implement at schools
• Clearly articulate the problems that face your district and the solutions you have in mind to address them – keep your options open